A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Beijing Jingkelong Company Limited (HKG:814) has paid dividends to shareholders, and these days it yields 4.7%. Does Beijing Jingkelong tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Beijing Jingkelong fit our criteria?
The company currently pays out 41% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 51% which, assuming the share price stays the same, leads to a dividend yield of 5.5%. However, EPS is forecasted to fall to CN¥0.13 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Beijing Jingkelong fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, Beijing Jingkelong generates a yield of 4.7%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
If Beijing Jingkelong is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for 814’s future growth? Take a look at our free research report of analyst consensus for 814’s outlook.
- Valuation: What is 814 worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 814 is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.